FBT NewsLexNo 10 - JANUARY 2016

PERIODIC LEGAL AND TAXINFORMATION REVIEW

TABLE OF CONTENTS

P02 Certain french social contributions prohibitedby the court of justice of the European Union:claim them back!

P05 Swiss civil procedure : the difficult task ofquestioning witnesses

P06 Swiss bank allowed to freeze its client’s assets assecurity against claw-back claims filed in the UnitedStates within the framework of the Madoff case

P08 New reporting duties of swiss companies andtheir shareholders

P10 The dangerous tax investigation legalproceedings in France

P12 Swiss lawyer vs crime money

P15 Negotiation of social plan with workerspursuant to swiss law

P16 Key amendments to the swiss anti-moneylaundering act (AMLA)

P18 Amended agreement on the banks' code ofconduct with regard to the exercise of duediligence (CDB16)

CONTACTMarco Villa

mvilla@fbt.chT. +41 (0)22 849 60 40

www.fbt.ch

CERTAIN FRENCH SOCIAL CONTRIBUTIONSPROHIBITED BY THE COURT OF JUSTICE OF THEEUROPEAN UNION: CLAIM THEM BACK!

It is difficult to forget the outcryover the famous AmendingFinance Law for 2012 (Law No.2012-958 of 16 August 2012, Art.29), which subjected to socialcontributions real-estate income aswell as capital gains on immovableproperty from French source reali-sed by French non-residents. Lessthan three years after this law waspublished, the Court of Justice ofthe European Union (CJEU) wasasked to give a preliminary rulingby the Council of State; the CJEUhas stated in its decision of 26February 2015 that this Frenchlaw was contrary to CommunityLaw (CJEU No. C-623/13), whichwas confirmed by the Council ofState in its decision of 27 July 2015(No. 334551). These decisionshave a rather substantial scope,since they concern in general alltaxpayers, French residents ornot, who have been wronglypaying social contributions.

The CJEU has ruled on the legalstatus of French social contribu-tions (CSC – Generalized socialcontribution, CRDS – Contributionfor the reimbursement of the socialdebt, social contributions, additio-nal social security contributions)to determine if these contributionsfall within the scope of bilateral taxconventions, or of the amendedversion of the Community Regula-tion of 14 June 1971 (No.1408/71).

Assessing that these contributionsparticipate in the financing of

mandatory social security pro-grams, the CJEU considered thatthey are social contributions andthus arise from the CommunityRegulation.

Now, this Regulation enshrines theprinciple of the prohibition ofcumulative social contribution leg-islations (Art. 13.1 of the Regula-tion). Thus, as a general rule, theapplicable social security legisla-tion is the legislation of the Statewhere the person performs hisemployee or self-employed activ-ity, regardless of his country of res-idence.

Accordingly, the judges of theCJEU ruled that once a personis liable to the social legislationof a member State of the Euro-pean Union (EU) other thanFrance (or is subject to thesocial legislation of Island, Nor-way, Liechtenstein or Switzer-land) pursuant to communitylaw, this person’s real estateincome shall not be subject tosocial contributions in France.Hence, the CJEU has extendedthe solution it had alreadyretained in 2000 for employmentincome and substitute income intwo judgments (C34/98 and C169/98).

This decision does not release thetaxpayers concerned from the dutyto pay social contributions on theirincome from French source. Theymust continue to pay them until thelaw is amended.

However, when an internal law taxprovision contradicts a higher stan-dard of law resulting notably froma jurisdictional decision, it opensthe possibility to file a claim forthe reimbursement of taxes thatwere not due!

As a consequence, in the eventwhere under Community Regula-tions, French social security leg-islation does not apply, the personwho has paid social contributionson his income is entitled to claima tax relief and a reimbursement.

This judgement highlights mainlytwo situations in which a personis entitled to file a claim:• The non-resident who receives

real estate income from Frenchsource on a secondary resi-dence or on a rented propertyand who falls within the scopeof the social security legisla-tion of another member Stateof the EU, of Island, Norway,Liechtenstein or Switzerland.He may claim the reimburse-ment of the social contribu-tions levied on his real estateincome and on his capital gainson immovable property.

• The cross-border worker wholives in France and performs aprofessional activity in anothermember State of the EU, inIsland, Norway, Liechtensteinor Switzerland, and who fallswithin the scope of the foreignsocial security legislation. Hemay claim the reimbursementof the social contributions2

levied on his real estate incomeand on his capital gains onimmovable property, but alsoon the overall income subjectto social contributions (capi-tal gains, capital gains on thesale of securities, capitalgains on disposal of securi-ties, income from the rentalof furbished properties on anon-professional basis,income on life-insurancecontracts…).

Since the determining criteria isthe affiliation to the social secu-rity legislation of another memberState of the EU, of Island, Nor-way, Liechtenstein or Switzer-land, there are other hypothesesin which a claim may be filed, asnumerous as varied, whichrequire expertise in this area.

We may mention the special caseof a person who is not domiciledin France and who performs aprofessional activity in severalStates, among which France; thatof a public officer who performsan activity in France and fallswithin the scope of a foreignadministration; or the case of aretired person who receives apension or annuity from anotherState, and who chooses the non-application of the French socialsecurity legislation.

Moreover, it is worth mentioningthat an agreement between one ortwo States may «derogate» fromthe rules of coordination providedin the Community Law under cer-tain conditions. In this situation,the applicable social security leg-islation shall be determined byapplying this agreement, on

which the success or the failure ofa claim will then depend. Whenby the effect of certain agree-ments, the person may choosehis affiliation to one social secu-rity regime, and he chooses theFrench social security legisla-tion, he decides de facto to besubject to social contributionson his income!

Let us not forget the problematiccase of a person wrongly liable tothe French social security regime,in breach of the Community coor-dination rules. In this situation, itwill be relevant to think about theopportunity of filing a claim forthe reimbursement of the socialcontributions on employmentincome and substitute income,notably, in addition to a claim forthe reimbursement of social con-tributions levied on other income. 3

PERSPECTIVESRegarding real estate gains, thetaxpayer should be able to file aclaim until the 31 December ofthe second year following the pay-ment of the tax. The taxpayer maythus file a claim on the 31 Decem-ber 2015 at the latest to ask for atax relief on the social contribu-tions levied on gains realised in2013 and 2014.

As for other income, the timelimitation for filing a claim is inprinciple two years after thenotification of the collection

notice. Concretely, it is possibleto claim the reimbursement ofthe overall social contributionspaid since 2012, for as long asthe claim is sent to the taxadministration on 31 December2015 at the latest.

As a reminder, these social contri-butions rate amount to 13,5%between 1 January and 30 June2012 and 15,5% since 1 July 2012.

Since the contested law of 2012aimed notably at increasing pub-lic revenues, it is uncertain

whether the French tax adminis-tration will immediately give afavourable answer and renouncethe corresponding revenue. Thisbeing said, the deadline to file aclaim is very short and it must beimperatively complied with, evenif one risks receiving a negativeanswer from the tax administra-tion before succeeding with theadministrative courts with theassistance of an experimented taxadvisor. Claim them back!

Contacts: Stéphanie Barreira andJérôme Bissardon

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The Geneva practice with regardto witnesses before civil jurisdic-tions has changed since the entryinto force of the Swiss Civil Proce-dure Code (SCPC). Some magis-trates, with a view to strictly imple-menting the «maxime des débats»(rule that the parties control thesubject matter of the proceedingsand may present the case as theysee fit), now refuse questions whichdo not result from a regular andtimely offer to produce evidence.Others are more flexible in favourof establishing the facts. These dif-ferent approaches trigger uncer-tainty.

Article 172 SCPC sets forth thecontent of the witnesses’ hearing. Itis divided into three themes.

Firstly, witnesses shall state theiridentity (Art. 172 para. 1 SCPC). Itis a question of verifying whetherthe right person is heard andwhether this person can be heard asa witness and not as a party.

Secondly, witnesses shall beasked about their personal rela-tionships with the parties andother circumstances that may berelevant to the credibility of theirtestimony (Art. 172 para. 2SCPC). This should allow notablyto find out possible interestsrelated to the outcome of the pro-ceedings, such as the existence ofcontractual relationships, or otherpersonal relationships. It mayalso allow to test the cognitiveand memory capacities of the wit-

nesses and to unveil a possibleknowledge of the dispute’s objectthey may have previouslyacquired.

Thirdly, witnesses must state thefacts of the case as they haveobserved them (Art. 172 para. 3SCPC). First of all, the fact mustbe relevant and disputed (Art.150 SCPC). Then, this fact musthave been alleged and the partythat has alleged it must have pro-posed to prove it through a testi-mony, regularly and timely, i.e.according to the form and withinthe deadline set forth in theSCPC pursuant to the «maximedes débats» (Art. 221, 222 and229 SCPC). Finally, the wit-nesses must have observed it,which excludes notably that thewitnesses may issue assumptionsor express an opinion on the case.

The possibility to ask questions tothe witnesses of the opposing partyresults from the right to be heard.However, it must be a cross-exam-ination, which means the questionsmust concern the same allegationson which the witnesses were inter-rogated by the party having sum-moned them. Failing that, it wouldbe a means of proof likely to berefused.

Since the witnesses are required tostate facts and not to confirm orinvalidate allegations, the ques-tions asked may vary a lot and theirlink to the assumption may bemore or less strong.

This flexibility being intended bythe SCPC, in our opinion theCourts should take it into accountwhen deciding on the acceptabilityof a question asked by a lawyer tohis witness or the opposing party’switness. It is a question of findinga balance between the purpose ofestablishing the facts and the ruleof explanation of positions.

PERSPECTIVESThe lawyer must always be in aposition to prove that there is alink between his question and anallegation for which the testimonyhas been regularly and timelyasked, or that it is a cross-exami-nation. If, despite having provedit, the Court rejects his question, itbelongs to the lawyer to have itrecorded in the minutes (Art. 176SCPC) to reserve the possibility toclaim a breach of the right to beheard.

Contacts: Serge Fasel andAlexis Dubois-Ferrière

SWISS CIVIL PROCEDURE : THE DIFFICULTTASK OF QUESTIONING WITNESSES

SWISS BANK ALLOWED TO FREEZE ITS CLIENT’S ASSETS ASSECURITY AGAINST CLAW-BACK CLAIMS FILED IN THE UNITEDSTATES WITHIN THE FRAMEWORK OF THE MADOFF CASE

The Swiss Federal Court hasissued on 20 July 2015 decisionNo. 4A_429/2014 in which itconfirmed the right of a bank tofreeze the assets of a client assecurity against claims it faces inthe United States within the fra-mework of the Madoff case. Thisdecision marks the end of aZurich dispute which had led todecision No. 4A_443/2011 of 22February 2012 which was limitedto the question of the existence ofa clear case.

The facts are the following: in Feb-ruary 2000, a client of a Swissbank instructed the bank to investan amount of USD 499,998.86 inthe Fairfield Sentry fund. In Sep-tember 2008, the client instructedthe bank to sell her units of theabove mentioned fund. After thebank executed the sale asinstructed by the client, the latter’saccount was credited with anamount of USD 994,996.21. A cou-ple of weeks later, further to theunveiling of the Bernard Madoff

fraud, the Fairfield Sentry fund,which had largely invested in thelatter’s companies, went bankrupt.Since April 2010, the bank hasbeen the object of a claw-backclaim filed in the United States bythe liquidator of the Fairfield Sen-try fund, aiming at the reimburse-ment of the amount credited on itsclient’s account further to the saleof her units. Due to these proceed-ings, in 2011 the bank refused torefund to the client an amount ofEUR  120,000 while her accounts

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showed a credit balance ofEUR  461,191.01 and USD153,503.09. The client thenbrought her claim against the bankto the courts.

After her claim was deemed inad-missible by the Federal Tribunal onthe grounds that there was no clearcase (ATF 4A_443/2011), theclient filed ordinary proceedingsagainst the bank.

In its decision of 27 March 2014,the Zurich Commercial Court con-sidered the liquidator of the Fair-field Sentry fund’s claim in theUnited-States against the bank asan acquired claimwithin the mean-ing of Article 102 para. 1 of theSwiss Code of Obligations (CO),of which the bank should bereleased by the client; as a result,the bank had a claim against theclient which justified the freezingof the client’s assets as a securityagainst this claim.

The client appealed against thisdecision on the grounds that theliquidator of the Fairfield Sentryfund’s claim against the bank wasat the most damages within themeaning of Article 402 para. 2 COand that, since no fault could beassigned to the client, and pursuantto the above mentioned provision,the bank could not require to bereleased therefrom. According tothe client, the bank did not have aclaim against the client againstwhich it could demand to besecured by freezing her assets.

In its decision of 20 July 2015,the Federal Tribunal rejected theclient’s appeal. However, it didnot respond the question whetherthe claim of the liquidator of theFairfield Sentry fund fell withinthe scope of the second paragraphof Article 402 CO. Indeed, it sim-ply considered that the right ofthe bank to be released resultedfrom an agreement between theparties and, accordingly, it wasnot necessary to look into thegrounds of the general rules ofthe mandate.

Hence, according to the FederalTribunal, since the bank hadacquired, kept and sold the units ofthe Fairfield Sentry fund in itsname but on behalf of the client, on

a regular basis and pursuant to theagreement, it was not up to thebank to assume the risks related tothese transactions. In particular, theloss of value of fund units resultingfrom a fraud already realised at thetime of the sale for the account ofthe client shall be borne by theclient not by the bank.

PERSPECTIVESThis long-awaited decision shouldbecome case-law within theframework of pending litigationsrelating to similar facts in which abank has acted in its quality ascommissioner, i.e. in its name buton behalf of the client.

Contacts: Serge Fasel andAlexis Dubois-Ferrière 7

NEW REPORTING DUTIES OF SWISS COMPANIESAND THEIR SHAREHOLDERS

On December 12, 2014, TheSwiss Parliament adopted theFederal Act for Implementing theRevised Financial Action TaskForce Recommendations («FATFAct») which introduced impor-tant amendments to the anti-money laundering Swiss legisla-tion. Among them, a first set ofrules aiming at increasing trans-parency of entities entered intoforce on July 1, 2015. The SwissCode of Obligations (CO) nowimposes two reporting duties: theduty for the holders of bearershares to identify themselves, andthe duty for the purchaser of bea-rer or registered shares whoseparticipation exceeds a certainthreshold to disclose the identity

of the beneficial owners. Asecond set of rules, whichamends the Anti-Money Launde-ring Act (AMLA), will enter intoforce on January 1, 2016 and willimpose on financial intermedia-ries the duty to disclose the iden-tity of the beneficial owners ofoperating companies, thus amen-ding the principles prevailing todate. The present article dealsonly the first set of rules.

Since July 1, 2015 any personwho purchases bearer shares ofa Swiss non-listed companymust, within three months asfrom acquisition, report his par-ticipation to the company, regard-less of the percentage of shares

acquired, and identify the actualholder of these shares. The newshareholder must identify himselfwith the company and communi-cate his/its name or registeredname, as well as his/its addressby presenting official identifica-tion, respectively an excerpt ofthe commercial register or anyother document deemed equiva-lent. This duty to report alsoapplies to any person holdingthis kind of shares as at July 1,2015.

Moreover, purchasers of sharesof non-listed Swiss companieswhose participation, alone orwith a third party, equals orexceeds 25% of the share capi-

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tal or of the voting rights shallnow disclose the beneficialowner(s) behind the purchasers.This duty to report applies bothto bearer or registered shares andshares of limited liability compa-nies or cooperatives and reflects,at the level of the Swiss companylaw, the new duty imposed onfinancial intermediaries to dis-close the identity of beneficialowners of more than 25% of theshares of commercial companies.It applies to all transfers madeafter July 1, 2015; the law doesnot impose the disclosure of thebeneficial owners of existingshareholders.

Swiss companies must now hold aregister of their beneficial ownersand, should the case be, a list of theholders of bearer shares and keepall documenting evidence.

However, it is worth mentioningthat the new provisions allow thecompany to appoint a financialintermediary to which the report-ing of bearer shares is made (thispossibility is not available for reg-istered shares), which allows tosafeguard the anonymity of theshareholders and their beneficialowners vis-à-vis the company.

The violation by a shareholder ofhis reporting duties may have sig-nificant consequences. Indeed, thelaw provides for the deprivation ofthe exercise of his social and patri-monial rights, the latter extinguish-ing even if the shareholder does

not report within the period of onemonth. In order to strengthen thesystem, the board of directors shallensure that the reporting duties ofthe concerned shareholders havebeen fulfilled before they exercisetheir rights.

PERSPECTIVESThese new duties extend the duediligence imposed to date onfinancial intermediaries to allSwiss companies, which nowhave the duty to know all theirshareholders and, in certain cir-cumstances, the individualsbehind these shareholders. Thenew rules try to prevent the abu-sive use of bearer shares whilemaintaining the possibility to usethem. The new law thus providesfor a facilitated mechanism ofconversion of bearer shares intoregistered shares, conceived toforce companies to progressivelyabandon bearer shares. In a lotof cases this conversion willindeed be the easiest solution torelieve the duties resulting fromthe new rules.

Contacts: Frédérique Bensaheland Véronique Chatelain Gomez

THE DANGEROUS TAX INVESTIGATIONLEGAL PROCEEDINGS IN FRANCE

On June 23, 2015, the Frenchgovernment disclosed the 2014figures of the voluntary disclosureproceedings: 1.4 million euros oftaxes recovered and 40,000 filesregistered. The 2015 figures shouldbe even better. In parallel to these«voluntary» disclosures, the numberof «forced» disclosures spurred bythe Criminal Judge has been increa-sing; they are conducted by ratherunknown counterparts: the judicialtax officers of the tax police.

In France, until the creation of thetax investigation legal proceedings,the resources available for the judi-cial police could only be used tocombat tax fraud after the imple-mentation of an administrative pro-cedure followed by the filing of acriminal complaint by the taxadministration. Now, the judicialpolice may take action upstreamand by surprise, the taxpayers not

being aware of the imminence of thecontemplated investigative and con-straint measures such as a search.

A new service was created withinthe framework of these criminalproceedings: the national brigadefor the punishment of tax crimes(brigade nationale de répressionde la délinquance fiscale –BNRDF), generally known as «taxpolice». This service has nationaljurisdiction and is composed ofjudicial police officers and taxinspectors, who have the status ofjudicial tax officers.

The tax police may intervene,under the direction of a publicprosecutor, in case of suspicion ofserious tax fraud, i.e. mainly:• in case of holding of a bank

account abroad;• in case of tax fraud committed

in an organised group (in collu-

sion with lawyers, notaries,bank officers, asset managers,fiduciaries, etc.);

• in case of existence – in relationto the taxpayer’s assets – ofintermediary artificial or fictivestructures located abroad (trusts,foundations, offshore compa-nies, notably);

• finally, in the event the taxpayeris fictively or artificially domi-ciled abroad.

It should be noted that the tax policemay also intervene on the groundsof serious laundering of tax fraud,which authorises the criminal juris-dictions to initiate proceedings forlaundering without the previous fil-ing of a complaint by the adminis-tration, as it is the case in the eventof tax fraud offences.

From a practical point of view, tax-payers become aware of the tax

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investigation legal proceedingsopen against them when theBNRDF officers come to theirdomicile, often early in the morn-ing, to inform them that a searchwill be performed. This search maybe extended to several domiciles ofthe taxpayer (secondary residence,office) as well as to the private orprofessional residence of third par-ties who either participate or arelikely to hold documents.

Further to the search, the taxpayeris often taken into custody at thepolice station of his place of resi-dence or in the premises of theBNRDF in Nanterre. The custody isa key moment of the procedure.Indeed, while the search operationsare of a material nature and consistin collecting documents (which, asregards the holding of financialassets abroad, are rarely kept in thedomicile of the taxpayer), custody is

the first time the taxpayer isdirectly confronted to the judicialtax officers. The latter have 48 hoursto obtain a «detailed confession».

PERSPECTIVESWe can conclude from our experi-ence with the tax police that afterhaving been the object of an earlyand traumatising search, followedby an arrest of up to 48 hours,even the toughest client will oftenconfess and give a lot of details,talking about the schemes thathave been proposed by differentservices providers as an alterna-tive to disclosure. Hence, thelawyer, who will be able to assistthe detained person as from thefirst hour, has a key role.

Depending on the nature of eachfile and on the evidence alreadyin the hands of the tax police –notably thanks to the previous

recourse to wiretapping, captureand interception of correspon-dence, e-mails, SMS, etc. – thelawyer will have to skilfullyguide his client towards anappropriate strategy of defencein a crisis situation.

The acknowledgement of relevantfacts and the commitment to regu-larizing the assets as soon as pos-sible may often avoid the seques-tration of French assets. Theinter-ministerial circular (Min-istry of Internal Affairs / Ministryof Budget) of 22 May 2014encourages the Public Prosecu-tors to be tougher when theaccused’s attitude shows no will-ingness to amend (absence ofcooperation, manoeuvre aimingat hindering the action of theadministration).

Contact: Alain Moreau

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SWISS LAWYER VS CRIME MONEY

Even when the lawyer performsan activity typical of his profes-sion, i.e. legal advice and repre-sentation before the courts, hemay face delicate questions when,once he is mandated by a client,he discovers that the latterintends to pay or has paid theretainer fee or his fees with fundswhose origin is unlawful, or atleast with funds whose origin thelawyer suspects to be unlawful.Which behaviour should thelawyer adopt and how would thisbehaviour affect the rights of hisclient?

The question arises with regardto the rules applying to moneylaundering, which aim at punish-ing any person having committedan act likely to undermine theidentification of the origin, thediscovery and the seizure ofassets which this person knows orshould assume stem from acrime.

Firstly we could consider that thelawyer who accepts to receive, asretainer fee or fees, funds whosesource appears to be questionableadds an additional step to theestablishment of the criminal ori-gin of the funds, and thus that hisbehaviour is likely to hinder theprocess of seizure of the assets hehas accepted. However, the Fed-eral Tribunal has luckily opted fora less restrictive interpretation ofthe criminal standard and consid-ered that the act must, concretely,be likely to hinder the origin of

the funds. For the act to fallwithin the scope of criminal pro-visions, it must not only be likelyto hinder the seizure, but alsocharacterise as an act of dissimu-lation, as a thief who hides theobject of his theft by burying it inhis garden or the criminal whogives his funds to an acquaintancein view of hiding them.

The Federal Tribunal remindedthat the fact of hiding cash,investing it or still exchanging itis undeniably an obstacle to theidentification of the funds. How-ever, the mere transfer of fundsstemming from crime on one’spersonal account, in the person’splace or residence, is not in itselfan obstacle to the identification orthe seizure of these funds. In thesame way, one may reasonablyconsider that the use of thesefunds for lawful purposes such asthe payment of lawyer’s fees, pro-vided they justify, would not trig-ger a criminal treatment lessfavourable than the transfer bythe person of these funds on hispersonal account or the fact thatthe person uses it to perform hiscurrent payments.

Accordingly, the risk that thelawyer be held liable for moneylaundering in relation to the col-lection of his fees, save if theseare excessive, is relatively low.

The question of the seizure of theamounts paid as retainer or asfees when the authority finds out12

their origin is more delicate. Inwhich circumstances can theauthority seize them and decide toconfiscate them?

In Switzerland, the judge has theduty to confiscate the assetsstemming from an offence.Nonetheless, he must renounceto confiscating these assets whenthe person who has acquiredthem ignored their criminal ori-gin and has provided an appro-priate consideration. In otherwords, the lawyer, as any otherindividual who provided a serv-ice in good faith may oppose theseizure of the amounts received.It goes without saying that thejudge will order the seizure ofthe overall assets received by aperson who willingly and know-ingly accepts funds of unlawfulsource.

The case would be more compli-cated when in the course of amandate, the lawyer finds out theunlawful source of the funds hehas accepted, or at least he sus-pects the funds may stem from acriminal source. Since in thiscase he cannot allege his goodfaith, which behaviour should headopt?

Within the framework of legalproceedings and in case of doubt,the lawyer could ask the compe-tent authorities to grant his clienta public defence. The lawyer whohas already been mandated by hisclient would thus request that the

Court appoints him as publicdefendant and that he be remuner-ated by the State in order to avoidthe confiscation of his fees. How-ever, this solution triggers a lot ofproblems. Firstly, the Court couldappoint a different lawyer thanthe one who made the request,since the will of the accused is notbinding. Secondly, the publicdefence does not always implythe granting of free legal assis-tance; accordingly, this requestoffers no guarantee and, since theclient is creditworthy, this requestcould be considered, at leastimplicitly, as a confession ofguilt.

Moreover, the lawyer could sim-ply refuse the mandate he hasbeen entrusted with or renounceto it. However, this solution is notsatisfactory since the lawyer has alimited termination right. Indeed,and notably within the frameworkof criminal proceedings, this ter-mination would be inappropriateand could harm the right to aneffective defence, which includesthe right to be assisted by alawyer. Besides, it is not accept-able to impose on the lawyers theduty to refuse to represent a per-son each time this person wouldbe accused of offences likely tohaving stemmed unlawfulincome.

Finally, the lawyer could contem-plate returning the balance of theretainer fees he has received.However, this solution must be

dismissed since it would deprivethe lawyer from the guarantee ofpayment and would expose him toa criminal risk since the restitu-tion could be deemed as an act ofmoney laundering.

In order to solve these differentproblems, some authors prefer theAmerican solution in which thelawyer is remunerated only at theend of the proceedings, whichavoids that he receives directlymoney from a crime. However,this solution would require animportant change of practicesince currently, the lawyer whodoes not request a retainer fee isguilty of professional miscon-duct.

Others think that it is necessarythat lawyers be granted the privi-lege consisting in authorisingthem to be remunerated for theirservices with money of criminalsource. Even if at first this solu-tion may seem unjustified, itwould allow to efficiently guaran-tee the rights of the defence,which goes beyond the pecuniaryinterests of lawyers. Indeed, thelawyer is a key element to thedefence of a citizen of a Stategoverned by the rule of law. Theright to a fair trial provided for inArticle 6 of the Convention forthe Protection of Human Rightswould be illusory if the lawyerwould find himself in a positionwhere his own interests (notablythe payment of his fees) wouldoppose those of his client. 13

Certain authors go even further andpropose to grant total immunity forlawyers both regarding moneylaundering and seizure measures,as it is the case in Canada.

Finally, one could consider aremodelling of legal assistancewhich would allow it to be grantedto persons whose assets have beenfrozen or are suspected to be ofunlawful source.

PERSPECTIVESThe activity of the lawyers is animportant contribution to thegood functioning of the justice ina State governed by the rule oflaw. This specific activity is per-formed not only in the interest ofthe client, but also more generallyfor the benefit of all citizens whocan count on an effective defence.The specificities of this activitymust be taken into account.Indeed, it is of the utmost impor-tance to find a satisfactory solu-tion to the issue of the lawyer’s

position when faced with crimemoney in relation to the paymentof his fees or retainer fees. Even ifconcrete cases are rare, the devel-opment of regulations which tendto combatting money launderingshould trigger an increase of thenumber of cases where this ques-tion may arise, and consequentlyof the legal insecurity resultingtherefrom, to the detriment of allpersons seeking justice.

Contacts: Serge Fasel and Emmanuel Badoud

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In our Newslex No. 7 of May2014, we presented the duty tonegotiate a social plan set forth inArticle 335i of the Swiss Code ofObligations (CO) of January 1,2014 and highlighted the exis-tence of several unansweredquestions raised by this duty. Inthis context, thanks to our firstfeedback we are in a position tohighlight the difficulties that mayarise in the absence of represen-tatives of workers and of collec-tive employment agreements withone or several unions.

As a reminder, Article 335i COprovides for the obligation for theemployer – who usually employsat least 250 employees andintends to make at least 30employees redundant for manage-rial reasons that have no personalconnection with these employees– to hold negotiations with theemployees aiming at preparing asocial plan. If the parties do notreach an agreement, the case mustbe brought before an arbitralcourt. Within the meaning of theabove mentioned provision, par-ties are on one side the employerand on the other side the unionsthat are parties to the collectiveagreement if such an agreementexists, or representatives of thecompany’s employees, or, in theirabsence, the employees them-selves (Art. 335i. para. 3 CO).

This third category includes allthe employees of a company andnot only those who could be the

object of mass redundancy. Thus,in the absence of unions andemployee representation bodies,the employer must contact eachemployee individually in order toestablish a social plan.

Accordingly, only when anagreement is concluded with eachemployee may we consider thatthe parties have reached anagreement with respect to thesocial plan, which waives theduty to bring the case before anarbitral court. Indeed, only agree-ments concluded with the repre-sentatives of the employees orwith the unions have a normativeeffect and are binding on allemployees.

It goes without saying that thisimplies a significant logisticeffort, even if doctrine admits thevalidity of an individual socialplan concluded by tacit agree-ment of the employee further toan unilateral offer made by theemployer. In addition, the offers –whose content must comply withthe principle of equality of treat-ment – must be carefully draftedsince they aim at amending theemployment contracts.

Taking these difficulties intoaccount, the question arises as towhether there is a risk that theemployer incurs a sanction,mainly for unfair dismissal, inthe event of mass redundancywhen one or several employeeshave not accepted the social plan

unilaterally offered and that thecase has not been brought beforeany arbitral tribunal. The casesprovided for in Article 336 CO donot include a new case of unfairdismissal specifically related tothe social plan; moreover, doc-trine and case law do not addressthis issue.

PERSPECTIVESIn our opinion, the argument ofmass redundancy may only besuccessfully invoked when it isevident that the employer actedin bad faith when renouncing tobring the case before an arbitraltribunal. This could be the caseif a majority of the employeesrefuse the unilateral social planoffers and the employer does nottake any other steps in this sense.In any case, account taken of theuncertainties in this matter, it isimportant to be careful.

Besides, even beyond the specificcase of the mandatory socialplan, there are numerous situa-tions where it is appropriate tohave a representative of theemployees as contact person.Large companies which do nothave one should contemplate thecreation of a staff committee.

Contacts: Serge Fasel andAlexis Dubois-Ferrière 15

NEGOTIATION OF SOCIAL PLAN WITHWORKERS PURSUANT TO SWISS LAW

The Financial Action Task Force(FATF) has revised its recom-mendations on the fight againstmoney laundering on February16, 2012. These recommenda-tions are international referencestandards in this regard. Therevised recommendations trigge-red in Switzerland the introduc-tion of new provisions in severallaws, notably the Anti-MoneyLaundering Act (AMLA). Thisadaptation was made through theadoption, on 12 December 2014,of the Federal Act for Implemen-ting the Revised Financial ActionTask Force (FATF) Recommen-dation.

Several amendments were intro-duced in the AMLA by the adop-tion of the Federal Act for Imple-menting the Revised FinancialAction Task Force (FATF) Rec-ommendations. These amend-ments will enter into force in Jan-uary 2016.

Firstly, the law introduces a newsubject: the «dealer». The dealeris defined as a person who, in aprofessional capacity, tradesgoods and receives payment incash in consideration. When thedealer receives cash paymentsexceeding CHF 100,000.00, forexample for the sale of movableor immovable property, he hasthe duty to comply with certaindue diligence duties, notablyregarding the verification of theco-contractor’s identity, the iden-tification of the beneficial owner

or the drafting and keeping ofdocuments.

However, the dealer is not sub-ject to supervision (no affiliationto a SRO and no FINMA license).Moreover, the dealer has no regu-latory duty if the transactionexceeding CHF 100,000.00 ismade through a financial inter-mediary.

Secondly, the revision of theFATF Recommendations willintroduce, for financial interme-diaries, the duty to identify polit-ically exposed persons (PEPs) inSwitzerland and abroad, as wellas PEPs of intergovernmentalorganisations and within interna-tional sports federations.Besides, the revision will extendthe duties of diligence to thenewly created categories accord-

ing to the principle of the risk-based approach.

Thirdly, this revision will intro-duce the strengthening of theduty for financial intermediariesto identify the beneficial ownersof companies. To date, the bene-ficial owner of an operative com-pany is the company itself. Thiswill no longer be the case as fromthe entry into force of theRevised Recommendations of theFATF. Indeed, as from January2016, the financial intermediarywill have the duty to identify thepersons in control of an operativecompany.

In this regard, the law providesfor a cascade system of defini-tions: the beneficial owner(s) ofan operative company is(are)deemed to be the shareholder(s)16

KEY AMENDMENTS TO THE SWISS ANTI-MONEYLAUNDERING ACT (AMLA)

(individuals) who hold(s)directly or indirectly at least 25%of the company’s voting rights orof the share capital. If they can-not be identified, the beneficialowner is deemed to be the personwho controls the company byother discernible means or, if theidentification of the latter is notpossible, the highest managingdirector.

Fourthly, the system of reportingto the Money Laundering Report-ing Office (MROS) will be rein-forced. The financial intermedi-ary will no longer have to freezethe assets simultaneously to thereporting of suspicion of moneylaundering to the MROS (whichoften had the undesirable effect

of allowing the person whoseassets were suddenly frozen toguess a procedure of reporting tothe MROS was ongoing). Thefreezing will only intervene if theMROS reports the case to thecriminal authorities. However,the account will be automaticallyfrozen if the account holder ismentioned in the list of personswho are the object of interna-tional sanctions.

PERSPECTIVESThese new duties will inevitablytrigger an additional regulatoryburden for financial intermedi-aries. Moreover, the fact thatthe AMLA shall also apply to«dealers» who are not affiliatedto a SRO and who will not be

otherwise supervised withregard to the implementation ofthis regulation (subject to themandate the «dealers» willgrant to an auditor in thisregard) is a promise of practicaldifficulties; indeed, contrary toclassical financial intermedi-aries which have been con-fronted to the issue of moneylaundering and trained to faceit, an important number of«dealers» are on the verge ofentering a world they totallyignore and which risks to entailheavy criminal sanctions forthose who did not benefit fromrelevant legal counselling.

Contacts: Marco Villa andVictoria Surer

17

AMENDED AGREEMENT ON THE BANKS' CODE OF CONDUCTWITH REGARD TO THE EXERCISE OF DUE DILIGENCE (CDB16)

The Swiss Bankers Association(«SBA») has revised its Agreementon the banks’ Code of Conductwith regard to the exercise of duediligence («CDB 16»). The newCDB 16 implements notably thelast recommendations of theFinancial Action Task Force(FATF) with regard to the identifi-cation of the beneficial owners ofoperative companies. It also intro-duces new provisions on the moda-lities of identification of the co-contractor and of the beneficialowner.

The main novelty of the CDB 16consists in the duty of the banksand securities dealers to identifythe beneficial owners of operatingand non-listed legal entities or

Swiss or foreign private companies(including foundations, except forsimple partnerships) (chapter 3CDB 16). In this regard, the SBAhas elaborated the concept of «con-trolling person».

Controlling persons are individualswho hold directly or indirectly atleast 25% of the company’s sharecapital or the voting rights. If thesepersons cannot be identified, thebank shall identify the persons whoexercise control over the legalentity or, if they cannot be deter-mined, the senior member of thecompany’s management, i.e. inprinciple its CEO (Art. 20 CDB16). The controlling persons shallbe identified through Form K,newly created.

Moreover, the CDB 16 introduceda provision aiming at facilitatingthe distant opening of bankaccounts, especially via the Inter-net, by allowing the electronicidentification of natural persons.The authentication of the identityof the client may be made byobtaining an authenticated copy ofan identification document of theclient certified by a body autho-rised to provide authenticationrecognised according to the Fed-eral Law on the Certification ofElectronic Signatures (CertES),with which the client will have pre-viously been electronically authen-ticated (Art. 11 para. 2).

The CDB 16 also contains twonew provisions on the identifica-

18

tion of trusts and foundations (Art40 and 41), which refer to the util-isation of Form T, as well as of anew Form S applicable to founda-tions and similar structures, FormT shall be filled in each time atrust is the co-contractor of thefinancial institution, even in caseswhere the beneficiaries of thetrust are established (non-discre-tionary trusts). Form T has alsobeen amended in order to takeinto account different types oftrusts (discretionary/nondiscre-tionary; revocable /irrevocable).New Form S is based on the samemodel as Form T. Moreover, themodalities of identification ofasset holding vehicles do notundergo any material changes.

Besides, a new provision on theidentification of the beneficialowners of collective investmentschemes with more than 20investors has been introduced(Art. 30 para. 2 CDB 16): identi-fication will be required when thecollective investment scheme is

not subject to appropriate super-vision with respect to combattingmoney laundering. The otherexceptions to the duty to identifythe beneficial owners of collec-tive investment schemes providedfor in the CDB 08 are reflected inthe CDB 16.

The identification of life insur-ance policies with separateaccounts/securities account(«insurance wrappers») is men-tioned in the CDB 16. Article 42codifies the requirements set forthby the FINMA in its communica-tion 18 (2010) regarding the dutyto identify the insured person, aswell as the actual premium payerif they are not the same person,using Form I.

The CDB 16 shall apply to banksand securities dealers as fromJanuary 1, 2016 for all businessrelationships open after this date.

It shall apply to the existing busi-ness relationships at the time the

identification of the co-contractorand of the beneficial owner willhave to be renewed.

PERSPECTIVESThe new rules on the identifica-tion of the beneficial owners ofcommercial companies representa real paradigm change forfinancial institutions. The con-cept of controlling person maybe difficult to implement in prac-tice, especially when the co-con-tractor is a commercial companybelonging to an internationalgroup with different holding lev-els. The opening of a businessrelationship with this kind ofclient will also become morecomplex and require a goodunderstanding of the client’sshareholding structure. Bankinginstitutions will have to adapttheir compliance procedures andtheir internal documentation tothese new requirements.

Contacts: Pierre-Olivier Etique and Laurent Schmidt, Geneva 19

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